Balancing The Scales: The Gift Planner's Dilemma

Balancing The Scales: The Gift Planner's Dilemma

Article posted in Ethics on 11 August 1999| comments
audience: Partnership for Philanthropic Planning, National Publication | last updated: 18 May 2011


As a charitable gift planner, for whom do you really work? Donor? Charity? Yourself? In this edition of Gift Planner's Digest, attorney Douglas K. Freeman brings over twenty years of experience to the ethical issues of gift planning with "Balancing the Scales: The Gift Planner's Dilemma."

By Douglas K. Freeman, J.D., LL.M.

The pressure of the job, the needs of the institution, the interests of the referral source, and the objectives of the donor-each of which create independent and sometimes inconsistent demands on the gift planner-make the design of a charitable plan, not to mention its post-gift operations, technically difficult and ethically challenging. Gift planners, whether full time development officers or outsider professionals who utilize charitable planning in their business, are subject to the most challenging ethical dilemmas imaginable.

How these sometimes vague, sometimes inconsistent, rules affect our conduct as professionals, and the consequences of such rules on the lives of our clientele and donors, is more than just an academic question. It will have significant impact on our institutions and the community as a whole. It could enhance or detract public confidence in our charities, the law, and the planning process. It has already changed the perception of federal and state agencies, including the Internal Revenue Service, the state Attorneys General, and the public media. As a largely unregulated industry, we are responsible for the standards of conduct to which we hold ourselves.

Indeed, we are largely defined by our values, and these are often expressed in terms of our ethics. Michael Josephson, founder of the Josephson Institute of Ethics, reminds us that

"Our future depends on ethics. Its challenges require a society of individuals wise enough and strong enough to do what is right."

Establishing, Honoring, and Enforcing Ethical Guidelines

Ethical standards give us the proper parameters in which to operate-they prohibit conduct that is inappropriate, and inspire us to our highest ideals.

The various associations of gift planners have promulgated their own set of guidelines for their respective memberships. Some of the guidelines may overlap; others may supplement, and on occasion, may even contradict those of other organizations.

The leading association for planned giving professionals is the National Committee on Planned Giving (NCPG). Together with the American Council on Gift Annuities (ACGA), a set of model standards of practice was adopted (Exhibit A). The principles were developed in response to a widespread concern about such issues as commission based fund raising, and the payment of finder's fees to referral sources.

At the time, an increasing number of financial planners and others were promoting charitable gifts in exchange for demanding a percentage of the ultimate, or sometimes present, value of the gift passing to charity. In one reported case, the planner requested a $70,000 fee for bringing a charity a charitable remainder trust funded with a $1 million asset. Several articles appeared in national publications, including Forbes, in which charitable planning was criticized because it seemed to duck the tax laws or manipulate them in such manner that neither charity nor the public was benefited, and only the estate owner and the financial planners came out ahead.

In 1975, The Securities and Exchange Commission (SEC) ruled that it would not require charities to register their gift planning arrangements, based on the belief that the primary purpose of such vehicles was charitable. In a 1980 ruling by the SEC, a gift planner did not have to register for soliciting contributions to a pooled income fund, provided that the solicitation was by a volunteer, or from a person who was employed by the charity and received no commission or special compensation as a result of the gift. [SEC Release No. 33-6175 (1980)]

In 1989, a group of planned giving officers developed an early version of a code of conduct, which they titled the Canaras Code. Many of the provisions of this statement of principles found its way into the Model Standards. Today, the Model Standards must be adopted by each of the member councils of NCPG, as a condition of affiliation with the national organization.

The Securities and Exchange Commission, in 1990, announced that charities that pay finder's fees for gifts, or promote gifts for their tax and financial benefits rather than for their philanthropic purposes, might have to register with the SEC. If this applied to professional gift planners it would add significantly to the cost and delays in fundraising, and make the process even more intimidating than it already is to many donors.

In 1993, the American Association of Fund Raising Counsel (AAFRC), the Association for Healthcare Philanthropy (AHP), the Council for Advancement and Support of Education (CASE), and the National Society of Fund Raising Executives (NSFRE), jointly promulgated the Donor Bill of Rights (Exhibit B).

The focus of these guidelines is on the rights and interests of the donor, rather than the goals and concerns of charitable organizations. What are the ethical and legal implications for gift planners who profess to consider the needs of the donor first, but proceed to disregard such interests in the quest to complete the difficult gift arrangement? If the charitable organization has adopted the Donor Bill of Rights, or other similar guidelines, in its gift policies and procedures, and the planned giving officer (PGO) disregards such guidelines, will it create personal or institutional liability to the donor or heirs of the donor?

Perhaps the only circumstance more dangerous for a gift planner than operating without specific guidelines is to operate in violation of such guidelines. Other professions have their own set of ethical guidelines. The legal profession is bound to adhere to its Rules of Professional Conduct, typically imposed and regulated by the bar association of each state. There is also the American Bar Association Model Rules of Professional Conduct and the Model Code of Professional Responsibility.

While not specifically governing non-attorney gift planners, it does apply to attorneys serving as counsel to individuals who may utilize a charitable gift, regardless of who pays the fee, and is useful as a guideline for other professionals in the planning field. The issues that attorneys must resolve in each representation include:

  1. Who is the client? If a private party seeks legal counsel but the charity agrees to pay the fee, is there dual representation?

  2. What disclosure is required by the attorney who is being paid by one party but serving as private counsel for another? Must the individual client acknowledge and waive the apparent conflict of interest, and who should be advising the individual as to the scope and affect of such waiver? If there is no independent advice to the individual, is the waiver even valid?

  3. What information provided by the donor may be disclosed by the attorney to other parties, including the charity? What if the attorney is also a member of the charity's board or development committee? What if the attorney is being paid by the charity, which believes it has the right to such information?

  4. Is the attorney technically competent to provide the legal services requested? What are the ethical duties of an attorney to disclose that the type of gift instrument requested is one that he or she has never prepared, or that must be designed and written by the charities inside staff or professional advisors?

  5. Is the attorney obligated to describe gift techniques that are not available to the charity that referred the case, even though such techniques are appropriate for the donor? A good example of this situation is the possible use of a charitable gift annuity for an elderly client, even though the charity does not have the required state license, instead of a charitable remainder annuity trust. Perhaps the donor should consider other charities that do offer this technique.

  6. Can or should the attorney prepare a gift agreement for a mentally incapacitated client, and under what conditions and limitations?

Marketing Methods and Programs

You must connect the donor's head, heart, and pocketbook to make the proper gift.

One of the greatest threats to the integrity of the philanthropic system is that individual's are increasingly motivated to use charitable gift planning for expressly noncharitable purposes. It is this actual or perceived abuse that invites legislative and regulatory scrutiny. Naturally, this does not mean that one must contribute without thought of the tax and economic benefits that are generated. In fact, these incentives are built into the system to encourage and reward those who do contribute.

But where the motivation is essentially one of evasion or manipulation, even if there is an element of philanthropy involved, the results will be counterproductive for the taxpayer, and damaging to the system. We've learned, through bad experience, that dealmakers make bad donors! Attention is raised when the methods of promotion exaggerate the personal benefits and discount or ignore the charitable purpose. Reminiscent of the tax shelter days of the prior decade, advertisements about charitable remainder trusts that announce the "Last Great Tax Shelter" are bound to raise the ire of the IRS and Congress, and tend to bring into disrepute the purpose of a charitable remainder trust.

What are the implications for a charity that promotes tax shelters? What is the image that it creates for its supporters? The marketing of gift planning by a charity raises serious questions. When articles are written by outside professionals, who could be a rich resource of experience and talent, what is the duty of the charity that publishes the article to verify its accuracy and appropriateness? Is there an editorial review policy that protects the organization from publishing technical mistakes or embarrassing material? This procedure should be included in the institution's board approved gift policy manual, and there must be continual monitoring of the program.

Seminars have long been a favorite method of explaining complicated topics in a non-threatening and friend-raising environment. But who controls the selection of speakers and topics? If the charity is the host organization, will the speakers be chosen for their understanding of charitable gift techniques or their willingness to underwrite the costs of the program? Is the program intended to explain and encourage charitable gifts or financial products?

Who has access to and control over the mailing list or the attendance list? If a professional advisor is conducting the program, is it reasonable to assume that all business generated as a result should or would be directed to the advisor? If the advisor is also a member of the board or volunteer planned giving council, must the audience be told? If an attendee wishes to engage the advisor to review and develop an estate or financial plan, what are the conflict of interest implications?

Charities often need the technical and financial help of the ancillary professions to produce interesting, educational, and cost efficient brochures and publications. But, the same issues and concerns that arise with seminars applies to brochures that are produced for or by the charity or other third parties. If the outside advisor, or vendor, has written or sponsored the brochure, there must be procedures to assure accuracy and quality, control the use of the names and addresses on the mailing list, and protect the reputation of the charity.

Solicitation Methods

You may be known by the company you keep.

Every donor solicitation is both an opportunity and a risk. Sometimes years of cultivation are required before a proposal for a major gift is made. But, if the solicitation is inappropriate or its approach poorly executed, the opportunity may be lost, and sometimes the relationship. If the planned giving officer brings a professional advisor on a call to a donor prospect, what is the specific role that such advisor is expected to play? Is the advisor there to confirm the design of the gift arrangement suggested by the PGO, or to independently assess the needs and circumstances of the prospect? Will this reassure or confuse the prospect? Is there a better way? How is the advisor to be introduced to the prospect-as the prospect's advisor or the institution's advisor?

The answer to the above questions may vary, depending upon the sophistication and capacity of the donor, the needs of the development officer, and the relationship of the advisor to the parties. The most important rule to remember, however, is that there must be no confusion in the mind of the donor. The role must be explained clearly, and in advance, so that the advice given can be weighed in proper perspective. If the donor thought that the attorney who came to the home was there as his or her counsel, then the advice given by such counsel may be accepted more readily. Such perception may be harder to change at the end of the meeting.

Increasingly popular in planned giving programs is the use of consultants to augment the development effort of an institution. Sometimes these consultants are full-time employees of other charities. Can a PGO for one institution act as a consultant for others? Certainly many senior planned giving officers provide professional services to more than one institution. Have the ethical implications been considered by the PGO and approved by the institutions? Whose prospect is the next introduction? Is there any danger or impropriety in shifting some of the donor's philanthropy to other charities that the PGO may represent? There may be no actual ethical violation, but what is the appearance? Are any resources of one institution (telephones, copy center, facsimile, email/Internet, staff) being used to benefit the fund raising of another institution? Are the professional networking and marketing efforts of one institution being used to expand the PGO's stable of clients?

Similar issues arise in the use of outside legal counsel. How is the counsel selected and reviewed? What are the professional criteria used to determine the competency and experience of the attorneys? Is there an expectation by attorneys who volunteer on the planned giving committee, or who serve on the board of directors, that legal work (including real estate, litigation or probate, in addition to planned giving) will be allocated or referred to them? If the attorney presents the technical material at the seminar, writes the marketing article, or participates in the joint call or gift plan, is it assumed, appropriate and necessary that such counsel be utilized in the implementation?

The proper solicitation and cultivation of elderly donor prospects and those who are physically or mentally disabled is one of the greatest challenges in fund raising. Of course, seniors are ideal prospects since nearly 80% have no estate plans, many will outlive their heirs, and even more may wish they had. But their age and infirmity make them vulnerable to loneliness, dependency, and undue influence.

State legislation has grown in recent years, designed to prohibit "elder abuse," which includes taking unfair and inappropriate advantage of an elderly person, to benefit oneself. Gift planners must be vigilant against the actual or perceived violation of these strict moral and expanding legal restrictions. Consider such issues as:

  1. Is the donor competent to make financial decisions? Who has made this determination? If the development officer has brought in outside counsel to advise the donor, is this adequate? Will the medical staff of the donee hospital be independent to make this judgment?

  2. Is the expressed disregard of the surviving family members real or imagined? Is it more a result of the sudden attention and care expressed by the PGO rather that the disregard and indifference of the family?

  3. What if the donor wishes to provide a specific gift from the estate to the development officer? Can or should the development officer accept such a gift? What if the donor wants to name the development officer as a fiduciary of the trust or will? Even if there is no legal restriction, does this create an appearance of impropriety? Should such appearance be sufficient to prohibit its practice? What is the requirement of disclosure to the donor, the charity, and the family?

The judgment calls that these questions require can be answered differently by each person unless there is a community sense of what's appropriate behavior and what's not. In philanthropy and public service, perception is often as important as reality.

Collaboration with Other Nonprofits

The rising tide carries all ships. Collaboration and cooperation tends to reassure donors, reduce expenses, and increase overall results.

Charities often combine their fund raising activities with sister organizations (those that share common ownership or management), or competing organizations that share the same market niche and donor groups (arts and cultural organizations within the community or church groups). Donors often appreciate the cost sharing that this provides, and it may even comfort them to know that there will be no "hard sell," because of the checks and balances inherent in such collaboration.

However, issues arise on the sharing of donor lists, appropriate allocation of prospects and inquiries that arise from the jointly sponsored program, and professional advisors. Should the participation of a donor to one organization be public knowledge or at least shared knowledge with other charities? Can a donor object to such disclosure as an invasion of privacy or confidentiality?

High Risk Techniques

Good rule of thumb: If the plan you designed were published in the local newspaper, would it embarrass you or expose your institution to risk? If so, don't do it.

Recent articles on such controversial plans as "Charitable Split Dollar" and "Charitable Limited Partnerships" are strong examples of this point. Promoters point to many reasons to implement these plans...

  1. These are gifts that would never come to charity except for this technique.

  2. There are no specific cases or rulings that prohibit it.

  3. Many lawyers have written long and wordy opinions that support it, with plenty of cases and tax code references, so they must know.

The donors who have separate counsel and tax advisors willingly accept the risks. But there are strong reasons to leave the "cutting edge" techniques for others to test.

  1. Bad gifts make unhappy donors. Unhappy donors make nasty litigants. Nasty litigants make noisy lawsuits. Noisy lawsuits make bad press. Bad press makes unemployment for development officers.

  2. There are often equally strong opinions by experienced legal and tax counsel in this area that have concluded that such an arrangement is legally insufficient.

  3. If the plan fails, it will subject the "donor" to loss of income tax deductions, current gift taxes, potential estate tax implications, and expenses associated with audits and investigation.

  4. Charities that participate have used their reputation to substantiate a program that may well fail. Unhappy donors may attempt to transfer blame and financial loss to the charities. It may result in excise taxes for private benefit or private inurement imposed on the development staff or board members, or even loss of exempt status by the charity.

This is not to say that creative planning must be abandoned whenever charitable giving is utilized. But remember the difference between pioneers and settlers. The pioneers are the ones with the arrows stuck in their backs.

Design, Implementation, and Management

Accept no gift before its time, or any gift that may harm your donor, bring disrespect to your institution, or jeopardize your integrity.

Some of the issues are quite apparent and easily avoided. The use of commission-based fund raising, or finder's fees, has diminished substantially over the last 10 years, in part as a result of the Model Standards, CASE, and AHP ethical guidelines. Less obvious attempts at commission compensation still exist. Some of the national "community" foundations (distinguishable from traditional local community foundations) still provide this benefit to their registered advisors and referral sources. Some advisors use inflated fixed fees instead of percentage compensation (such as $25,000 for preparing and funding a charitable remainder trust, the actual costs of which may be $2,500).

Often confused with this issue is the use and compensation of insurance agents and financial planners. These professionals are among the best sales people in the country. They often have technical, communication, and personal skills that are superior to other professionals in the financial and estate planning disciplines. In addition, many of these professionals are active in charitable organizations and community groups so they understand the needs and perspectives of such entities.

The fact that they many earn their living from the sale of products, or receive commissions from doing so, does not change either their skill level, or their ethical standards. Ethical behavior requires balancing self-interest with community interest. It is possible to do so and still be well compensated. Note also that many financial planners are "fee-only," and do not receive compensation from the sale of products.

However, gift planning does not mean that every donor needs life insurance or variable annuities. Nor does it mean that one is not a potential donor just because such individual is neither insurable nor interested in the investment opportunities presented by the planner. Gift planners who want to use financial planning professionals should understand the technical training and certification of the advisors (e.g., Certified Financial Planners). It is always appropriate to do background verification and referral checks.

Less recognized is the use and compensation of board members and volunteers to implement a charitable gift plan. This issue raises the questions of conflict of interest and technical competency. It may apply to the legal drafting, trust administration, investment management, tax reporting, appraisals, or sales brokerage.

Each institution should address in its gift policy manual the procedures that must be followed wherever an appearance of conflict of interest arises.

General rules of thumb that are worth following include:

  1. Being a member of the board or planned giving committee does not entitle the advisor to a role in the design, implementation, or operation of a gift to the institution.

  2. Every donor, and an oversight committee of the board, should be given full, written disclosure of any actual or potential conflict of interest. The donor should always be given an opportunity to utilize someone without such a conflict, and should be advised by independent counsel on these issues.

  3. If there is proper disclosure, an opportunity to use others, technical experience and competency, and reasonable and appropriate fees, the risks are minimized and the interests of those involved with the charity should be balanced with the rights and expectations of the donor.

Similarly, not all lawyers have experience in tax and estate planning matters, and even fewer have training and experience in charitable gift planning. It is appropriate to ask for the extent of such experience in such techniques as charitable remainder trusts, charitable gift annuities, pooled income funds, charitable lead trusts, bargain sales, private and support foundations, and conservation easements.

It is also appropriate to ask how the attorney is paid, and what professional alliances he or she may have with other advisors in the planning process. Some attorneys have special fee arrangements with insurance agents, banks, and investment advisors. Such arrangements must be disclosed as part of the conflict of interest rules that apply to attorneys.

Attorneys must also be knowledgeable about and comfortable in recommending direct gifts and bequests, which may not result in complicated trust documents, if such techniques may be appropriate to the donor. It might be wise to scrutinize carefully relationships in which the attorney designates himself or herself as the trustee, executor, director of the foundation, or beneficiary of a share of the estate, since this might suggest self-interest over client interest.

When designing a specific charitable gift plan, the PGO must try to avoid institutional or personal design biases. While it may seem unlikely, some planned giving officers would rather implement a sophisticated deferred gift arrangement on behalf of a donor rather than accept an immediate, outright donation. This may be inspired as much by how the PGO is compensated or rated, as ego and intellectual challenge. Major gift officers are often heard to complain that their planned giving colleagues overlook the obvious in pursuit of the obscure.

The issue of how a gift planner is measured, promoted, and compensated is one that raises a variety of questions and policy decisions. Is the PGO credited for an outright gift to a school or department that is the result of the identification and cultivation of the donor through the planned giving marketing program? How is this credit shared with the unit development officer?

The ethical dilemma is obvious-the donor's interests and abilities may be inconsistent with the development officer's career path.

Bequests constitute nearly 5% of the total of the charitable gifts made annually. This is likely the largest share of all planned gift arrangements. Many donors are willing to disclose their designation of the charity prior to death. They are motivated to do so in order to enjoy the emotional benefits of having their favorite organizations know their intentions.

Development officers are encouraged, for good institutional planning reasons, to encourage their donors to make these bequests irrevocable through the use of enforceable pledge agreements. Is this is the best interests of the donor? What if the family circumstances change? What if the financial needs of the donor change? If the distribution is to be made from retirement plan assets, which may be the most efficient form of giving from the donor's perspective, does this violate federal tax rules against alienation of retirement plans?

Because so much of this type of planning is made with older donors, the issues related to undue influence become very relevant.

For many older donors, the simplicity, tax benefits, and speed that is available through charitable gift annuities makes them the preferred form of giving. But, what if the institution does not offer gift annuities? Does the PGO have a duty to disclose the technique anyway, even though the institution would prefer the use of the charitable remainder annuity trust?

If the institution is utilizing the standard rates recommended by the American Council on Gift Annuities, but the donor would like the higher rates offered by a competing charity, should the PGO hike the rates to retain the gift? If allowed under state law, must this change be disclosed to the donor, to the board of the institution, or senior management?

It might seem surprising that the choice of types of charitable remainder trusts is an ethical issue. But consider the affect of this choice on the value of the remainder interest ultimately passing to the charity. Unitrusts invested for growth may be more valuable to the charity at the time the trust terminates, but subject the donor/income beneficiary to greater risks on the distribution.

Is there an institutional bias on which of these arrangements is to be offered to the donor? Does the charity really "offer" the trust, or does the donor decide on the type, design, and funding? Many donors repeat, in private conversations with their advisors, that the charity is "willing" to do a charitable remainder unitrust, paying 5% of the net income for their lifetimes. In fact, it is the donor who picks each of these elements. The role of the PGO is to present viable choices and alternatives, explaining the benefits and risks of each.

Is there an institutional preference for a standard pay unitrust, net income unitrust, flip style unitrust? Is it the charity that selects the type of unitrust or is it the donor's right? Presumably, the PGO understands the differences among each. If not, has the development officer breached his or her duty of care and competency?

Does the charity have model documents to provide to the donor and counsel? Are they written with the available variations of design that the donor could choose, or does it narrow the choices to those that fit the institutional bias of the charity? Are the choices developed because of the charity's guidelines for accepting the responsibility as trustee?

The selection of the remainder trust's payout rate is one of the design features that is most visible and raises the most serious questions of ethics. A low payout may mean greater remainder interest, but less benefit to the donor/income beneficiary. Even if the payout level would benefit the donor over the long run, does it do so on a present value basis? Has the realistic term of the trust, after considering the donor's health and life expectancy, been considered in determining the present value?

Was the donor explained the minimum (5%) and maximum (50%) rates available, and the consequences of this decision from an income tax and cash flow perspective? When the donor (or the heirs) raise the question in the future, will the file contain adequate records of this analysis and explanation? Does the donor need independent advice on the choice?

Many planned giving proposals are prepared using software programs that project income and estate tax savings merely from "assumed" effective marginal tax rates. Has the donor been advised to confirm the tax benefits (that may have been projected by a planned giving officer or others with only a limited knowledge of the donor's complete income tax picture) with his or her tax accountant?

How many times has the question been asked by donors of providing multi-generations with the right to remainder trust payments? Was the answer based on the tax consequences (income and estate) to the donor, or on the extended delay that would result for the charity? The issue is also raised in circumstances involving an elderly donor with a young spouse. Will the plan invariably lean to a single life charitable trust using other assets to provide for the spouse?

What is the practice in the charity to advise on the choice of remainder beneficiaries? Has the donor been told of the right to select more than one charity? Or the power to add or remove charities? Does the file reflect this? Will the attorney referred into the case by the charity be free and encouraged to explain the choices available? Will the model document provided to the counsel contain this power? What if the donor would have preferred to utilize a private or community foundation as the ultimate charitable beneficiary? Has this option been explained? What is the duty of the development officer, planned giving consultant, or donor's attorney to explain the various choices and options?

Will the charity act as trustee? Should it do so? Does it have the technical competency and internal staff to handle these responsibilities? Was the decision to recommend itself as trustee motivated by the fear of a third party interfering with the relationship with the donor or cutting into the economics of the charity's gift? Was the design of the trust based on the charity's assumption that it would be responsible for the administration and investment, therefore more limited than if someone or some entity independent of the charity were to act?

Does the charity really administer the trust or is there a "back office" third party administrator or custodian actually doing the work? Would this affect the decision of the donor to choose a professional trustee with whom the donor could discuss the issues of administration directly? Does the donor understand that he or she could act as trustee? Is the donor capable of doing so, or were they encouraged to do so because it would be more cost efficient and benefit the ultimate charitable recipient? As the donor ages and becomes infirm or incompetent, is the charity prepared to step in, or has the successor management been properly and thoroughly addressed?

Who is paying for the cost of trust administration? If the charity is the trustee, is the trust reimbursing it for its costs even though the document states that the trustee is to receive no fees? Does the donor understand that costs (investment expenses and advisory fees, accounting, legal, etc.) will still be charged? If an outside entity or individual is acting as trustee, can or should the charity pay the expenses and fees out of its own pocket? Is there any risk of private benefit or private inurement?

Who has the right to receive period reports of the trust performance and administration? Has the donor's advisor been kept advised and informed? Will the charity receive reports? Does the donor understand these reports? Is it the responsibility of the PGO to be sure that the donor remains comfortable and knowledgeable? It is probably axiomatic that donors understand only about 50% of what they are initially told, and retain only about 10% of that. Real understanding comes with experience and may lead to disappointment or impatience as often as pleasure and excitement. Meeting annually to review performance and compare what was promised, is good business and good ethics, especially when it is done in both upside and downside years. It builds confidence in the relationship.

Investment Management

The wealth given to charity is not charity's wealth; they are merely stewards for the rest of us.

The standards of investment for assets in trust are generally governed under the Prudent Investor Act, in place in various formats in every state. Does the charity understand these rules and have they incorporated each into its trust management practices? Other rules and requirements (e.g., Uniform Management of Institutional Funds Act) often guide assets held by the charity itself.

As a trustee over assets in a charitable remainder trust, there are many decisions that are within the scope of the trustee's discretion. How much should be allocated to fixed instruments that provide a steady source of income but forfeit much in future appreciation, compared to equities, in which there is more upside potential and downside risk, and less income available. Is the decision based on a balancing of the interests of the income beneficiary and remainderman? Would the choices made withstand the scrutiny of an independent review by knowledgeable investment advisors? Does this decision change if the trust is limited to distributions of income only and cannot invade principal?

Donors who choose to act as their own trustee face this same dilemma. Are they aware of the responsibility to act impartially and to consider the needs of both current and future beneficiaries? Can they detach themselves from the emotional bonds of the contributed assets and view their investment duties from an objective and balanced perspective?

Donor Recognition

This year's happy donor is next year's best prospect.

Is there any coordination between the way outright donors are recognized and deferred or planned giving donors are recognized? Will a $1 million remainder trust be acknowledged at the same level as a $1 million cash gift? Should it? Would the two donors assume that the gift was the same in value? Was the decision affected by the development officer's desire to "close" the deal?

After a deferred gift has "matured" and been distributed to the charity, has the nature and level of donor recognition changed? Is it fair to the deceased donor who left $1 million at death to be a member of the Heritage Society, while the living donor is memorialized with the name inscribed on the library or hospital wing? Has the charity breached its implicit duty to the family of the deceased donor to reward the donor, even posthumously, with the same level of recognition as for living donors?

Will the charity enforce a donor's written pledge? This may be the most awkward and difficult decision for a charity to make. Will it enforce a written, irrevocable pledge of a living or deceased donor? If it does, will it win in the view of the public? If it does not, will it undermine the confidence of other donors who may have given in response to, or as part of the momentum of, the promised gift?

What is the legal duty of the directors and trustees of the charity who are charged with the responsibility to enforce the contracts of the charity, and to steward its assets on behalf of the community? Did the development staff do all that it should have to clarify the responsibility of the donor, and to assure that all the questions and conditions were clarified or resolved at the time the pledge was made?


The ethical standards of a community are based on the collective ethics of each of its members. As members of the planned giving community, the level to which each of us is committed will, inevitably, help shape our profession, our institutions and our society. It starts with us.

Exhibit A

Model Standards of Practice for the Charitable Gift Planner


The purpose of this statement is to encourage responsible gift planning by urging the adoption of the following Standards of Practice by all individuals who work in the charitable gift planning process, gift planning officers, fund raising consultants, attorneys, accountants, financial planners, life insurance agents and other financial services professionals (collectively referred to hereafter as "Gift Planners"), and by the institutions that these persons represent.

This statement recognizes that the solicitation, planning and administration of a charitable gift is a complex process involving philanthropic, personal, financial, and tax considerations, and often involves professionals from various disciplines whose goals should include working together to structure a gift that achieves a fair and proper balance between the interests of the donor and the purposes of the charitable institution.

I. Primacy of Philanthropic Motivation
The principal basis for making a charitable gift should be a desire on the part of the donor to support the work of charitable institutions.

II. Explanation of Tax Implications
Congress has provided tax incentives for charitable giving, and the emphasis in this statement on philanthropic motivation in no way minimizes the necessity and appropriateness of a full and accurate explanation by the Gift Planner of those incentives and their implications.

III. Full Disclosure
It is essential to the gift planning process that the role and relationships of all parties involved, including how and by whom each is compensated, be fully disclosed to the donor. A Gift Planner shall not act or purport to act as a representative of any charity without the express knowledge and approval of the charity, and shall not, while employed by the charity, act or purport to act as a representative of the donor, without the express consent of both the charity and the donor.

IV. Compensation
Compensation paid to Gift Planners shall be reasonable and proportionate to the services provided. Payment of finders fees, commissions or other fees by a donee organization to an independent Gift Planner as a condition for the delivery of a gift is never appropriate. Such payments lead to abusive practices and may violate certain state and federal regulations. Likewise, commission-based compensation for Gift Planners who are employed by a charitable institution is never appropriate.

V. Competence and Professionalism
The Gift Planner should strive to achieve and maintain a high degree of competence in his or her chosen area, and shall advise donors only in areas in which he or she is professionally qualified. It is a hallmark of professionalism for Gift Planners that they realize when they have reached the limits of their knowledge and expertise, and as a result, should include other professionals in the process. Such relationships should be characterized by courtesy, tact and mutual respect.

VI. Consultation with Independent Advisers A Gift Planner acting on behalf of a charity shall in all cases strongly encourage the donor to discuss the proposed gift with competent independent legal and tax advisers of the donor's choice.

VII. Consultation with Charities
Although Gift Planners frequently and properly counsel donors concerning specific charitable gifts without the prior knowledge or approval of the donee organization, the Gift Planner, in order to insure that the gift will accomplish the donor's objectives, should encourage the donor early in the gift planning process, to discuss the proposed gift with the charity to whom the gift is to be made. In cases where the donor desires anonymity, the Gift Planner shall endeavor, on behalf of the undisclosed donor, to obtain the charity's input in the gift planning process.

VIII. Description and Representation of Gift
The Gift Planner shall make every effort to assure that the donor receives a full description and an accurate representation of all aspects of any proposed charitable gift plan. The consequences for the charity, the donor and, where applicable, the donor's family, should be apparent, and the assumptions underlying any financial illustrations should be realistic.

IX. Full Compliance
A Gift Planner shall fully comply with and shall encourage other parties in the gift planning process to fully comply with both the letter and spirit of all applicable federal and state laws and regulations.

X. Public Trust
Gift Planners shall, in all dealings with donors, institutions and other professionals, act with fairness, honesty, integrity and openness. Except for compensation received for services, the terms of which have been disclosed to the donor, they shall have no vested interest that could result in personal gain.

Adopted and subscribed to by the National Committee on Planned Giving and the American Council on Gift Annuities, May 7, 1991. Revised April 1999.

Exhibit B

A Donor Bill of Rights

PHILANTHROPY is based on voluntary action for the common good. It is a tradition of giving and sharing that is primary to the quality of life. To assure that philanthropy merits the respect and trust of the general public, and that donors and prospective donors can have full confidence in the not-for-profit organizations and causes they are asked to support, we declare that all donors have these rights:

I. To be informed of the organization's mission, of the way the organization intends to use donated resources, and of its capacity to use donation effectively for their intended purposes.

II. To be informed of the identity of those serving on the organization's governing board, and to expect the board to exercise prudent judgment in its stewardship responsibilities.

III. To have access to the organization's most recent financial statements.

IV. To be assured their gifts will be used for the purposes for which they were given.

V. To receive appropriate acknowledgment and recognition.

VI. To be assured that information about their donations is handled with respect and with confidentiality to the extend provided by law.

VII. To expect that all relationships with individuals representing organizations of interest to the donor will be professional in nature.

VIII. To be informed whether those seeding donations are volunteers, employees of the organization or hired solicitors.

IX. To have the opportunity for their names to be deleted from mailing lists that an organization may intend to share.

X. To fee free to ask questions when making a donation and to receive prompt, truthful and forthright answers.

Developed by: American Association of Fund Raising Counsel (AAFRC), Association for Healthcare Philanthropy (AHP), Council for Advancement and Support of Education (CASE), and National Society of Fund Raising Executives (NSFRE).

Endorsed by: Independent Sector, National Catholic Development Conference (NCDC), National Committee on Planned Giving (NCPG), National Council for Resource Development (NCRD), and United Way of America.

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